CDL $1.36B Mainland Investment in Danger as Sincere Property Sued for Bankruptcy

Singapore real estate giant City Developments Limited confirmed today that after investing a total of $1.36 billion into Sincere Property Group, the Chongqing-based developer has been sued for bankruptcy in a Chinese court.

Beijing Yi He Mercury Investment, a creditor of Sincere, on Monday submitted a bankruptcy claim in a Chongqing court as the initial step in a process that could lead to a restructuring or liquidation of the cash-strapped developer if a settlement proves elusive.

CDL, which after a board revolt last year has refused to invest further in Sincere as the privately held firm has defaulted on a series of domestic Chinese bonds this year, made clear in a statement to the Singapore Exchange acknowledging the bankruptcy case that it intends to keep its insolvent partner at arm’s length.

“As announced previously, the Group stated that it has ring-fenced its current financial exposure to its investment in Sincere Property and it will not support the continuing financial obligations of Sincere Property,” CDL said. “Despite the bankruptcy proceedings, the Group will continue to strenuously protect its position and limit further exposure.”

Disaster Watch

Sincere failed to repay the RMB 444.5 million ($68.8 million) principal on a bond that matured on 11 March, according to earlier media accounts, with the developer having now piled up overdue debts of RMB 8.8 billion, according to industry data, including bank loans, trust loans, bonds and related party loans.

Having acquired a 51 percent non-controlling stake in Sincere last year, CDL said in its statement that it will continue to monitor the situation and limit further exposure to its joint venture with the financially challenged builder.

The bankruptcy motion is considered to be a preliminary court procedure, with Sincere continuing to have an opportunity to attempt an amicable resolution with its creditors, according to a mainland legal advisor contacted by Mingtiandi.

CDL said its board had been informed that Sincere would announce the bankruptcy claim on the Shanghai Stock Exchange, although no message had appeared on the SSE website as of Thursday evening.

The developer controlled by Singapore billionaire Kwek Leng Beng noted that in preparing its 2020 financial results, a decision was made to impair S$1.78 billion ($1.32 billion), effectively writing off 93 percent of its total investment in Sincere. CDL’s remaining exposure amounts to S$126 million.

Bloomberg reported that Sincere was preparing to work with stakeholders and creditors on a restructuring, citing sources who asked not to be identified discussing private information.

Blame the Committee

In March, a war of words erupted between the two joint venture partners after Sincere released a statement asserting that a delay in decision-making by “the controlling shareholder” — apparently meaning CDL — had “seriously affected the timely implementation of financing and asset disposal to improve company operations and cash flow”.

In its response, CDL contended that Sincere Property Holdings Ltd (a company controlled by Sincere Property Group’s founder) and CDL jointly control the JV in terms of its material decisions, while the existing team set up by SPHL exercises direct oversight of day-to-day operations and worksite matters.

CDL said Sincere Property Group has its own eight-member board represented by all three shareholders — CDL (four directors), SPHL (two) and Greenland Holdings Group (two) — thus precluding majority control of board decisions by CDL.

Expensive Lesson

CDL has stated that Sincere’s liquidity problems were inherent even before the Singaporean firm’s April 2020 acquisition of a 51 percent stake in the mainland builder for RMB 4.39 billion ($621 million).

In February, CDL announced that the write-down on the Sincere investment had “distorted” the company’s 2020 results. CDL reported a full-year net loss of S$1.92 billion, calling it the worst performance in company history.

The Sincere impairment was revealed less than a week after CDL had signed on for its effective 55 percent stake in Shenzhen Tusincere Technology Park Development in a bid to shore up the liquidity of the joint venture with Sincere.

The handling of the Sincere investment had triggered the shock resignation last October of Kwek Leng Peck as non-executive, non-independent director after over 30 years in the role.

Kwek, the cousin of CDL executive chairman Kwek Leng Beng and the uncle of CDL group CEO Sherman Kwek, was followed out the door by three independent non-executive directors, Koh Thiam Hock, Tan Yee Peng and Jenny Lim.